We were due for a snap-back rally after the carnage we saw a week ago, and the S&P 500 has responded, although it has found resistance at the 20-day EMA.  That's not unusual on the first attempt, but we will want to see the index move back above it or all bets are off for this rally. 

                       
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The 20-day EMA has not fallen below the 50-day EMA, and that is a good sign.  We talked yesterday about how that crossing is a big warning sign, but should the 20-day EMA start up again, it would be a very good sign.

Strong rallies after sharp sell-offs can be confusing as the bulls want to believe we have seen a bottom and a new leg higher is starting.  The bears believe the overhead resistance will prove too much in a market that had broken down technically.

I am skeptical myself and I'm looking for clues from the leader, and the Dow Transportation Index did make its move yesterday.  We have talked often about the "fake out" / breakout patterns that come out of these triangle formations.  The Transports have now completed that pattern and this is another positive sign.

                        
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

It made this move in spite oil moving close to $103 a barrel, something that took the wind out of the index's sails a couple of weeks ago.  The difference this time seems to be that oil is not moving higher solely because of the supply concern, but more because of the weakness in the dollar and some stronger economic data.

I have raised 25% cash (G-fund) over the last few days and will play it by ear the rest of this month.  I probably won't go below a 50% stock fund allocation unless the overhead resistance sends the S&P straight back down from the 20-day EMA.

Thanks for reading!  We'll see you back here tomorrow.

Tom Crowley